Court Grants Plaintiff’s Motion for Discovery Sanctions, Enters $5,247,781 Default Judgment and Awards $645,760 in Attorneys’ Fees and Costs

S. New England Tel. Co. v. Global NAPs, Inc., 251 F.R.D. 82 (D. Conn. 2008) (Second Amended Ruling)

In this case, plaintiff (“SNET”) alleged that Global NAPS, Inc. had misrouted long-distance traffic of certain circuits not designated for such traffic, thereby depriving SNET of applicable access charges, and that Global failed to pay SNET access charges specified in SNET’s federal tariff for special access circuits Global ordered from SNET’s tariff.  In May 2006, the court granted SNET’s Motion for a Prejudgment Remedy in the amount of $5.25 million.  At the same time, the court ordered Global to disclose assets sufficient to secure the prejudgment remedy within two weeks.  Global’s failure to comply with the court’s order evolved into a two-year discovery battle over Global’s financial records.

In December 2006, SNET filed an Amended Complaint, which added additional defendants affiliated with Global.  SNET’s Amended Complaint alleged that the defendants’ corporate structure was a "sham,” and sought to hold the defendants collectively liable for the underlying allegations set forth in SNET’s original Complaint against Global.

In this opinion, the court found that the defendants willfully violated the court’s discovery orders by failing to turn over their general ledgers and other business records, lied to the court about the inability to obtain documents from third parties, and destroyed and withheld documents that were within the scope of the discovery requests and the court’s discovery orders.  Among other things, defendants:

• Misrepresented that they did not have custody or control of their financial records, and falsely claimed that a third party accountant was withholding the financial records in an attempt to delay the discovery.

• Falsely argued to the court that certain documents did not exist because a particular witness’s computer had “crashed” and all of her data was lost.  The court noted that the "crash" of this computer should have had "absolutely no impact" on the production of discovery because the witness testified that she "dropped” the computer after the court-ordered deadline for production had come and gone.  Further, the court found no reason to believe that the data on the computer was irretrievably lost, and noted that the hard drive of this "dropped" computer was not produced and defendants never explained why documents were unretrievable from the hard drive, why the computer was not been produced, or where it was.

• Erased computer documents in bad faith.  A forensic examination of the replacement computer used by the witness after her computer “crashed” revealed that the witness had used an application called "Window Washer," a software program with the capability to overwrite data and disk space that had existed on the computer’s hard drive.  Parts of this program were initially created on the morning of June 12, 2007, the same morning a corporate officer of defendant arrived to "search" for responsive documents on the computer.  In her deposition, the witness testified that she ran the program because she was concerned that her personal information was on the computer, and she did not want anyone involved in this litigation to have access to it.  She further testified that she never ran Window Washer again.  However, the forensic examination revealed that she did not merely use the program in its default mode, but chose the "wash with bleach" option, which overwrites deleted files.  In addition, she used Window Washer’s "data wiping utility" several times, which allowed a user to manually erase specific files.  The forensic expert explained that, for every file erased using this utility, the user must chose to "Shred (wash with bleach)" each individual file or directory, and then click again to confirm that they want to erase that file or directory.  Further, Window Washer was uninstalled from the computer the night of June 20, 2007, and a "Disk Defragmenter" utility was used on the computer on June 25, 2007.  The expert explained that, while the Disk Defragmenter can be used to improve the computer’s performance, it also makes forensic analysis of a computer more difficult when files have been deleted.  Further, this was the first and only time the Disk Defragmenter was used on the witness’s computer.

Based on these and other findings, the court concluded that defendants committed a fraud upon the court, and that their willful discovery violations prejudiced, indeed likely destroyed, plaintiff’s ability to prove its case.  Further, the court found that defendants had squandered judicial resources by dragging the court into frequent policing of discovery disputes over an inordinate period of time.

In light of the defendants’ history of violations, and the court’s prior explicit warning that failure to comply would result in a default judgment entering, the court found that lesser sanctions would not deter defendants from further delaying discovery in the case.  “Indeed, the court has little confidence that the discovery sought continues to exist.”  The court concluded that “defendants’ behavior exemplifies the type of willful disregard for the process of discovery created by the Federal Rules of Civil Procedure that warrants the ultimate sanction of dismissal.”

Accordingly, the court granted plaintiff’s motion for default judgment, and ordered the clerk to enter judgment in favor of the plaintiff on certain claims and against the defendants, jointly and severely, in the amount of $5,247,781.45.  Further, the court directed that the judgment should also include the award of fees and costs of $645,760.